Method for obtaining and allocating investment income based on the capitalization of intellectual property

ABSTRACT

The present invention relates to methods of valuing property assets and methods of securitizing such assets. The present invention provides a means whereby holders or owners of proprietary intellectual property may readily determine the value to the business of the securitization of their intellectual property estate and obtain capital by securitizing all or part of their intellectual property estate.

The present invention relates to methods of valuing assets and methodsof securitizing such assets. In particular, the present inventionrelates to methods of valuing and securitizing intellectual property.This is a divisional application of application 09/481,126, filed onJan. 11, 2000 which claims priority to Provisional patent applicationNo. 60/115,490 filed on Jan. 11, 1999 and Provisional Patent applicationNo. 60/161,178 filed on Oct. 22, 1999.

BACKGROUND OF THE INVENTION

An object of financial transactions is to efficiently relate thevaluation and risk of property created in the course of an enterprise tomonetary sums which may be paid for or advanced against such property. Aprimary purpose for such transactions is the increase in capital whichmay be employed to perpetuate further useful enterprises. Tworequirements of financial transactions are: (a) a means by whichproviders of capital may reasonably determine whether to enter intoparticular financial transactions with holders of property, and (b) ameans for effecting the exchange of capital and property, respectively.

Various computational means exist that constitute prior art formeasuring the reasonable market value of financial transactionsinvolving properties owned by an enterprise. In the case of tangibleproperties and real estate, a principal element of the means has beenthe existence of a marketplace wherein the payment or advancement ofmonetary sums for similar properties occurs regularly, is recorded andpublished, and information is consequently available to participants inother such transactions. This permits a quantification of material termsand conditions for a specific financial transaction based on itssimilarity or, alternatively, its dissimilarity to prior financialtransactions which occurred in a specific marketplace. For example, realestate is often purchased using money borrowed in the form of amortgage. The lender provides the capital to acquire the property fromits current owner in exchange for agreed upon future payments and asecurity interest in the property. Often, the original lender sells itsmortgage rights to a third party for an amount based on the estimatedpresent value of the future payments which the purchaser agrees to make.Similarly, one who owns real estate may obtain capital by selling thereal estate to a lender and leasing back the property on specific terms.Both mortgages and/or sale/lease back agreements have been packaged andre-sold to third parties as securities. The process by which such asecurity is created is referred to as securitization.

The essential elements of such transactions that permit securitizationare an assignable agreement having one or more specified future paymentsbacked by rights sufficient to assure the party purchasing the securitythat the payments will be made or title to property of similar value canbe obtained. In the case of a mortgage, the property interest is titleto real estate. In the case of a sale/lease back, the property interestis the right of eviction. In the case of the securitization of patents,discussed in more detail below, the property interest obtained in theevent that the future payments are not made is the right to excludeothers from the use of the invention. In each case, the party providingthe capital has the ability to acquire a property interest that can beresold to others to provide a return on their original capitalinvestment in the event that the specified future payments are not madeaccording to the agreement.

An increasingly significant object and result of human enterprise is thecreation of new and useful knowledge through scientific inquiry andexperimentation. Such activities are otherwise known as research anddevelopment (hereinafter “R&D”). Between the years 1981 and 1996 variouspublic and private enterprises of the United States expended in theaggregate a sum varying between 2.32% and 2.74% of the annual GrossDomestic Product on R&D. In the calendar year 1995, aggregate U.S. R&Dexpenditures were computed to be in excess of $183 Billion. A result ofR&D expenditures has been the creation of useful and proprietarydiscoveries which is generally called intellectual property. In thepractice of accounting, it is well established that intellectualproperty is “intangible property” which is distinguishable from“tangible property” such as real estate, equipment, business inventoriesand the like.

As an incentive for R&D expenditures, R&D costs are fully deductible asan expense in the year the costs are incurred. Therefore, when R&Dexpenditures result in intellectual property such as a patent, the “bookvalue” of the patent is zero even though the value to the business maybe large. The market value of intellectual property is rarely evaluatedbecause it is rarely sold or otherwise conveyed. This is so because themore valuable an intellectual property is, the more likely it is to beused by the business that developed it and the less likely it is to besold. Thus there can exist a substantial difference between the marketvalue of intellectual property and its book value. This differencerepresents an unrecognized capital asset of many businesses.

Heretofore, the apparently inalienable nature of intangible property hasbeen an impediment to the securitization of such assets. This intangiblequality of intellectual property has frustrated development of financialtransactions to capitalize the inherent value of intellectual property.Although, patents and other intellectual property have been sold forcapital and security interests in intellectual properties and have beenused in the past to obtain capital, no generalized market for suchproperties has developed. One reason for this is that methods fordetermining the value to the business of intellectual property have notbeen made readily available to financial managers. Therefore,expenditures on R&D have tended to consume capital resources of anenterprise due to the unavailability of straightforward securitizationfor any resulting intellectual properties.

Some intellectual properties, created as a consequence of R&D, possessdesirable characteristics which lend themselves to securitization.Patents are one such intellectual property. Patents entitle the owner toexclude others from practicing the invention covered by the patent.Another type of intellectual property is information described inwritings and knowledge arising within a business which is: (a) notgenerally known by others; (b) is retained in secret, and (c) isdisclosed to others only under covenants to retain such disclosedintellectual properties secret between and among the parties bound bysuch covenants (referred to as “trade secrets” or “know how”).Copyrights are another form of intellectual property which may besecuritized.

A characteristic of these intellectual properties is the opportunityafforded to the owners or holders of such intellectual properties tolicense, lease or otherwise convey rights to use or otherwise practicethe useful art, in whole or in part, embodied in such intellectualproperties (hereinafter referred to as “licensing”).

The securitization of these intellectual properties has not widelyoccurred due to the lack of a readily available method for determiningthe value to a business of the securitization of some or all of itsintellectual property and the lack of a marketplace for securitiesrelated to intellectual properties. Additional obstacles to thesecuritization of intellectual properties has been that priortransactions have either not constituted a sale subject to the favorabletax treatments associated with a sale. Other prior transactions haveinvolved a sale and license arrangement where future payments arerelated to future sales of the goods or services covered by theintellectual property. In such a transaction, the future payments arenot fixed or readily predictable. Therefore, the current value at anygiven time of such an agreement is difficult to quantify withoutsubstantial analytical effort.

An object of the present invention is to provide a means whereby holdersor owners of proprietary intellectual property may readily determine thevalue to the business of the securitization of their intellectualproperty estate and obtain capital by securitizing all or part of theirintellectual property estate. A further object of the invention is toprovide a method of securitizing intellectual property that can have thetax treatment of a sale and has predictable future payments whichpermits ready valuation of the current value of the security at any timeduring the life of the agreement. A further object of the presentinvention is to provide a means to relate the valuations and risksassociated with different proprietary IP's to each other and to othersecuritized financial transactions. A still further object of thepresent invention is to provide a means by which providers of capitalmay aggregate and convey capital, and holders of proprietary IP mayaggregate and convey proprietary IP in exchange for said capital. Theaforementioned means shall also provide for the allocation of andaccounting for equitable interests, income, and liabilities by and amongthe respective parties. Collectively, the means contemplated by thepresent invention are embodied in certain novel software, flowcharts andcomputational algorithms which separately and collectively constitutethe devices and utilities to accomplish the aforementioned objects ofthe present invention. Another novelty disclosed by this invention isthe securitization of proprietary IP through the concurrent orsequential exchange of rights in possession with rights in use whichappends to the underlying financial transaction. A still further noveltydisclosed by this invention is the creation of a legal entity requiredto hold the entire interests of the investors' rights in conveyedintellectual properties to perfect and enforce such rights.

GENERAL DESCRIPTION OF THE INVENTION

The essential elements of the method of securitizing a patent includetransferring title to one or more patents from the initial owner to asubsequent owner and the grant back to the initial owner of a licensewhich has a scope less than the entire exclusive right of the patent andwhich requires one or more fixed future payments, which payments can beassigned to third parties by the subsequent owner. The scope of thelicense may be a nonexclusive license which permits additional licensingby the subsequent owner. Alternatively, the license granted to theinitial owner may be an exclusive license limited to a field of use lessthan the entire scope of the patents involved in the transaction.

The invention Includes a Unique Method of Securtizing a Patent.

To securitize a patent or other intellectual property, the entityacquiring the patent must truly become the owner of the patent so thatthe favorable tax treatment associated with the sale of a capital assetcan be achieved. Further, the acquiring entity must obtain investmentcapital using recognized financial transactions. Therefore, the methodof securitizing a patent described herein includes related but separatefinancial transactions, one of which is the true transfer of title toone or more patents and the other is in the form of an assignableinvestment instrument, including a system of obtaining payments from theformer patent holder and allocating payments to one or more investors.The invention is discussed in more detail below with respect to an ownerof a single patent. Nevertheless, the methods disclosed herein areapplicable to a portfolio of multiple patents and to other types ofintellectual property, as well.

The method comprises a method of allocating payments to each respectiveone of at least one investor account including the steps of: (a)defining at least one investor account, (b) obtaining an initial amountfrom at least one investor in exchange for an assignable agreement toallocate a proportionate amount of future income to the investor(s), (c)associating said initial amount from the investor(s) with theinvestor(s)'s account(s), (d) identifying the initial owner of a patent,(e) paying an amount to said initial owner of said patent upon thetransfer of title to said patent from said initial owner to a subsequentowner other than one of the investor(s), (f) granting a license to saidinitial user for the use of the invention covered by the patent fromsaid subsequent owner in exchange for an agreement by said initial ownerto make at least one payment in a predetermined amount at a specifiedtime, wherein said at least one payment may be assigned by saidsubsequent owner to a third party, (g) said license being limited inscope to include less than the entire exclusive right conferred by thepatent, (h) obtaining at least one payment from said initial owner ofsaid patent, (i) allocating said at least one payment from said initialownership to the respective investor account(s), (j) wherein eachinvestor(s) may assign their right to receive payment to a subsequentinvestor.

The method may also be applied in the situation where a particularpatent is already licensed to a user other than the owner. In such case,the patent may be acquired from the current owner, subject to theexisting license obligation, so long as the existing license isconsistent with the method disclosed herein. Alternatively, the methodmay be applied independently of such license so long as the license backto the initial owner is broad enough to encompass the existing license.Thus, the method would not be directly applicable in the situation wherea patent owner had granted an exclusive license of all the rightsgranted by the patent unless the licensee also participated and agreedto enter a new license in accordance with the method disclosed herein.

Although the method can be applied in the situation where there is onlyone investor, a much more typical situation will involve multipleinvestors. In that situation, each investor has a separate account andcan separately sell their interest to subsequent investors and thesystem must create and track multiple investor accounts.

The Invention Includes a Method of Determining a Change in Value of anOwner of a Patent.

To effectively securitize a patent, an economically reasonable estimateof the current value of the patent must be obtained. Further, theability to demonstrate to the current owner the value to them ofsecuritizing their patent(s) is useful. While numerous methods ofestimating the value of one or more patents are known, the inventiondisclosed herein includes a method of combining an estimate of the valueof a patent with an assessment of the impact on the value of thebusiness of securitizing that patent. This method comprises enteringinformation related to the patent estate, calculating a value of thepatent estate using a first valuation algorithm, selecting a secondvaluation algorithm having a plurality of inputs, inputting the value ofthe patent estate into the second valuation algorithm, inputting atleast one additional piece of information required by the secondvaluation algorithm, and calculating the change in value of the owner ofthe patent using the second valuation algorithm. The method furthercomprises: inputing an identifier indicative of a utility of the patentby selecting from a list comprising “new product category,” “improvementon an existing product,” “a new process,” “an improvement on an existingprocess,” and “regulatory compliance.” The method may further comprise:selecting a first valuation algorithm from a plurality of valuationalgorithms by selecting a first valuation algorithm particular to thetype of utility associated with the patent. The method further comprisesentering information on the financial characteristics of the owner notdirectly related to the patent. The owner's return on equity is anexample of such a financial characteristic.

Method of Calculating the Change in Value of an Owner of IntellectualProperty Upon Entering a Securitizing Agreement.

The present invention is a method to determine the securitizable valueof a patent estate and whether the owner of the estate will be benefitedby securitizing the patent estate. The method also applies to othertypes of intellectual property such as copyrights and trade secrets. Forpurposes of simplicity, the following discussion will use a patentestate for illustrative purposes.

Identifying a Patent Estate.

In order to begin the process, a patent estate must be identified.Generally, a business is identified that is interested in securitizingtheir patent portfolio. The business will identify all patents whichthey own and which they wish included in the patent estate beinganalyzed. A patent estate for the purposes of this invention may be asingle patent or group of patents but would generally consist of all thepatents owned by the business that relate to a particular product lineor business activity. The patent estate may also contain patents ownedby third parties so long as the business has exclusive rights in suchthird parties patents and the right to convey such exclusive rights toothers. Once the patent estate is specifically identified, for thepurposes of the method, the patent estate is given an identifier fortracking purposes.

Entering Information Related to the Patent Estate.

Once the patent estate is identified, its current value must bedetermined to an acceptable degree of accuracy for purposes ofsecuritization. Different methods of valuing patents exist and willproduce different estimated values. Typical information used for thisvaluation include, but are not limited to, sales of the goods covered bythe patent, cost savings attributable to the invention covered by thepatent, the book value of the business activities associated with thepatent and ongoing expenditures for research and development. The numberof different approaches to determining value of the patent estate isvirtually limitless. See, for example, 1982 Licensing Law Handbookpublished by Clark Boardman Co.

When determining securitizable value, it is particularly appropriate toinclude methodologies that account for ongoing revenues and costs.Patents not associated with any revenue are unlikely to have areasonably predictable security value. Further, some patents have thebenefit of reducing costs and reduced costs must be considered for suchpatents. Some patents, such as those associated with environmentalcontrol technologies, provide the benefit of permitting a business tocontinue in operation and therefore ongoing revenue is preserved.

The particular valuation algorithm will necessarily determine whatinformation must be obtained and entered for the valuation to becompleted. In addition to financial information, additional informationsuch as the remaining life of the patent or a description of the benefitprovided may be used by the first valuation algorithm.

Determining a Value of the Patent Estate Using a First ValuationAlgorithm.

Once the first valuation algorithm has been determined, the currentvalue of the patent estate is determined using the algorithm.

Selecting a Second Valuation Algorithm Having at Least Two Inputs.

Determining whether a particular business should securitize a particularpatent estate will depend on factors in addition to the estimated valueof the patent estate. In particular, it will rarely be beneficial tosecuritize a patent estate, which requires a future payment streampredicated on a return on investment to the securitizing party greaterthan the business's return on equity. Therefore, in addition todetermining the current value of the patent estate, the change in valueof the owner of the patent estate must be determined. It is presumedthat a patent owner would not securitize its patent estate if itresulted in a drop in the value of the business.

Entering the Value of the Patent Estate into the Second ValuationAlgorithm.

Although not dispositive, the current value of the patent estate ispresumed to be the value at which the estate will be securitized,assuming a decision to securitize is made and therefore the estimatedcurrent value is a critical piece of information used by a secondvaluation algorithm. Once the change in value of the business based onthis assumption has been determined, the patent estate may besecuritized for an amount related to, but not identical to, theestimated current value. For example, if the estimated current value is$370,180,000, the patent estate may be securitized for $350,000,000,$370,000,000 or other amounts in a similar range but would not beexpected to be securitized for an amount of $500,000,000.

Securitization will typically involve an exchange of the patent estatefor a lump sum payment and an agreement to make future royalty payments.The future value to the business of the net proceeds of the lump sumamount must be considered in any second valuation algorithm. One measureof the future value of the net proceeds of the lump sum payment is thebusinesses current return on equity. Other measures such as money marketrates or the prime rate may also by used.

Securitization may also involve an agreed upon future payment streamfrom the securitizing party to the business.

Entering Additional Information Required by the Second ValuationAlgorithm.

Once the second valuation algorithm is selected, the appropriateinformation is collected and entered.

Using the Second Valuation Algorithm to Determine a Change in theCurrent Value of the Owner of the Patent.

The second valuation algorithm will determine the value of the businessassuming the patent estate is securitized and presuming that the patentestate is not securitized. The difference between the two values is thenet value of the decision to securitize the patent estate. If the valueis positive, the business will be better off in the amount if the patentestate is securitized in accordance with the assumptions of the method.

The method of Establishing a Marketplace for Securitized IntellectualProperty.

To permit the management of a portfolio of securitized patents with theability to include new investors and permit existing investors totransfer their interests, a computer system is necessary. The systemwill handle multiple patent portfolios, multiple investor accounts andthe transactions whereby interests in the various patent portfolios aretransferred between investors.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 is a general flowchart view of the portions of the computationaldevices that respectively provide: (1) valuations for patentedintellectual properties and (2) investment criteria database andevaluation of an enterprise's pre-existing financial condition.

FIG. 2 is a continuation of FIG. 1's flowchart view of the computationaldevices which further provide for optimization and selection oftransaction parameters following from the valuation investment criteriaportions of the flowcharts.

FIG. 3 is a general flowchart view of the formation of an investmententity for the pooling of investment capital, acquisition of patentestates, collection of revenues and distribution funds, revenues,proceeds and interests amongst parties of the investment entity.

DESCRIPTION OF THE PREFERRED EMBODIMENT

A preferred embodiment of the invention for securitization of patents isillustrated in FIGS. 1, 2 and 3 as follows:

-   -   1. In FIG. 1 at 1A, Patent Holder [1] inputs into Computer        Program [7] a Patent [2] available for valuation and        securitization.    -   2. Patent Data [3–6] is accessed from patent documents or data        transmitted electronically (facsimile or internet access among        other methods) including but not limited to; patent number, date        of issue, claims, citations, inventors, assignees, and cross        references and entered into Computer Program [7].    -   3. Computer Program [7] prompts the program user at decision        point [8] to declare ownership status of Patent [2]. A negative        input at [8] prompts decision point [9] to determine assumption        of legal liabilities by Holder [1] pursuant to a securitization        of Patent [2]. A negative input at [9] terminates the processing        of Patent [2] by Program [7] and prompts the user for a new        Patent [2′] at decision input [10] from Holder [1] into Program        [7]. A negative input at [10] prompts user to enter a new Patent        Holder [1′] at 1A on FIG. 1.    -   4. A positive response at [8] or [9] prompts Performance Data        sub program [11] to engage a plurality of decision points        [12–14] to select utility of Patent [2] to Holder [1]. Decision        points [12–14] determine whether Patent [2] constitutes an        invention or improvement of a product, process, or compliance of        a product or process to regulatory standards, among other        factors. An affirmative input at a particular decision point        [12–14] engages an algorithm with a function scalar ≠0 within        sub program [15] of Program [7]. The algorithm may derive from a        database of applicable algorithms for a particular decision        point [12–14]. A negative input to all decisions points exits        sub program [11] and prompts decision point [10].    -   5. Sub-program [15] prompts the user to input accounting and        business data at inputs [16–19] that relate to Patent [2]. Such        inputs may include, without limitation: [16] historical and        current accounting data related to revenues, direct and indirect        costs, balance sheets, and associated cash flows; [17] forecasts        of future accounting data; [18] risk algorithms applicable to        [17]; and [19] R&D and continuing development costs for Patent        [2].    -   6. Sub-program [15] performs a computational analysis which        compares data inputs from [16–19] to data computed from assuming        non-existence of Patent [2].    -   7. A decision point [20] performs a difference analysis of the        output of Steps 5 and 6 previous to determine Patent [2]        marginal value. For marginal value >0 sub-program [15] inputs        Patent [2] data to sub-program [21] to perform valuation        modeling. For marginal value ≦0 the program prompts [10].    -   8. The prompt of sub-program [21] concurrently prompts inputs        [22–25] relating (without limitation) to the proprietary life        and uncertainty risks associated with Patent [2]. Inputs [22–25]        consist without limitation; [22] economic life; [23] legal life        (may include input of [4]); [24] technology risk obsolescence        (may include inputs [5,6] and selection of algorithm contained        within database [40]); and [25] valuation risk comprising        selection of algorithms in database [40] or direct input.        Sub-program [21] compares inputs [22–25] to valuation data array        database [40] at 1B which comprises accumulative data on a        plurality of patents from a plurality of holders.    -   9. Sub-program [21] performs a series of patent valuation        optimization computations [26] detailed at 2A on FIG 2.    -   10. Holder's [1] input of Holder's financial description [27]        into Program [28] on FIG. 1 may constitute a separate program or        a linked program to Program [7]. The program link occurs at [20]        where marginal value>0 and inputs to decision point [29] to        characterize a transaction as “on” or “off” balance sheet. “On”        balance sheet transactions prompt sub program [30] to compute        algorithms for patent [2] valuations based on changes made to        balance sheets. “Off” balance sheet transactions input data at        outputs [20] and/or [28] directly into financial model        sub-program [31].    -   11. Sub-program [31] receives inputs alternatively from decision        point [29], sub-program [30] or database [50] at 1C. Database        [50] may receive and accumulate Investor investment parameters        [32] at 1D on FIG. 1. Sub-program [31] uses computational        algorithms to initialize financial optimizations at [33] and        detailed at 2B on FIG. 2.    -   12. Output from [31] is accumulated in database [50] for future        reference, and standardization and normalization of financial        computations.    -   13. The Valuation scenario sub-program at [26] connects at 2A on        FIG. 2. At [34], the user is prompted by a decision point to set        valuation boundary conditions. The valuation boundary conditions        may include, without limitation, alternative inputs to inputs        [16–19, 22–25]. An affirmative response at [34] prompts input        [35] for boundary conditions {N_(i)} and {N_(f)} for various        alternative inputs.    -   14. Inputs at [35] initialize sub-program [36] which dimensions        Valuation Model {N_(x)}. A negative response at [34] directly        inputs outputs at [26] in sub-program [36].    -   15. Valuation Model sub-program [36] enters a subroutine [37]        which performs a “do loop” maximum/minimum iteration sub-program        [38] for each {N_(x)}. The output at [38] queues Valuation Data        array [39] and inserts and/or compares data output to Valuation        Data Base [40] at 1B on FIGS. 1 and 2 respectively.    -   16. An optimization of Valuation Model {N} and Financial        Optimization {M} is performed at sub program [41]. Such        optimization methods may include without limitation,        maximization of the determinant of the cross product of {N} and        {M} or topological analysis. Output is held at [42] in storage        pending next selection of {N} boundary conditions at [43] which        enters subroutine [37].    -   17. The Financial scenario sub-program at [33] connects at 2B on        FIG. 2. At [44] the user is prompted by a decision point to set        financial boundary conditions. The financial boundary conditions        include, without limitation, financial performance conditions        such as net present value, discounted cash flow, minimum or        maximum investment increments. An affirmative response at [44]        prompts input at [45] to set financial boundary conditions        {M_(i)} and {M_(f)}.    -   18. inputs at [45] initialize sub-program [46] which dimensions        Financial Model {M_(x)}. A negative response at [44] directly        inputs outputs at [33] in sub-program [46].    -   19. Financial Model sub-program [46] enters a subroutine [47]        which performs a “do loop” maximum/minimum iteration sub-program        [48] for each {M_(x)}. The output at [48] queues Financial Data        Array [49] and inserts and/or compares data output to Valuation        Data Base [50] at 1B on FIGS. 1 and 2 respectively.    -   20. An optimization of Valuation Model {N} and Financial        Optimization {M} is performed at sub-program [41]. Such        optimization methods may include without limitation,        maximization of the determinant of the cross product of {N} and        {M} or topological analysis. Output is held at [51] in storage        pending next selection of {M} boundary conditions at [52] which        enters subroutine [47].    -   21. A plot and/or sort of data held at [42] identifies        ({N_(Max)} vs. M).    -   22. A plot and/or sort of data held at [51] identifies        ({M_(Max)} vs. N).    -   23. At decision point [53] the intersection of {Plot N_(Max)}        determined at [42] with {Plot M_(Max)} determined at [51] {Plot        N_(Max)∩Plot M_(Max)} is evaluated. An intersection resulting in        a Null set is deemed negative which prompts decision point [54].        An intersection ≠Null set is deemed affirmative and prompts        selection of M and N at [55].

SPECIFIC EXAMPLE

Example 1-A

Monetization of a Patent

Company T decides to monetize a patent it owns which is identified asPatent A. Patent A is a U.S. patent which covers the composition ofmatter of a pharmaceutical substance α which is used in the treatment ofa human health disorder H. The following information is known aboutPatent A, product α, and the marketplace for health disorder H:

-   -   (a) The unexpired life of Patent A is 10 years=AG23=RPL.    -   (b) Company T is the assignee of the entire interest in Patent        A.    -   (c) There are no legal actions pending against Company T with        respects to the validity or enforceability of Patent A.    -   (d) Company T spent $1,000,000=AG21=IF(IREV>0,AG21=0,AG21) to        research and develop the technology covered by Patent A which        Company T expensed in the years in which the research was        conducted.    -   (e) The sales of product α are $25 million per year=IREV in the        United States. The economic life of α, absent foreseeable        technological replacements, will significantly exceed 10 years.    -   (f) Sales of product α have grown steadily at 10% per        year=RVGR=IF((11/*G1−IREV)/G1<RVGR,RVGR=H1,RVGR) in the previous        five years.    -   (g) The value of all products and services currently used to        treat disorder H in the U.S. is $30 million per year.=G1    -   (h) The incidence of H is increasing 3% per year=H1 in the U.S.    -   (i) Approximately 90%=I1 of persons suffering from H respond        favorably to treatment by α which is also the lowest cost form        of treatment for H.    -   (j) The materials, manufacturing overhead, sales, administrative        and continuing R&D costs associated with α as a percent of sales        revenues:

Sales Revenues 100% Materials  .20% = MTL Manufacturing Overhead  10% =MFGOH Gross Margin  70% Sales  15% = SALESEXP Administration  10% = ADMNContinuing R&D  5% = R&DEXP Operating Margin  40%

-   -   (k) Company T is taxed at the rate of 35%=XTAXRATE=XCGR for        ordinary income and capital gains income respectively. For        simplicity in this example, the rates are assumed to be the        same.    -   (l) The financial method of analysis used by Company T are        return on equity (“ROE”) and net present value (“NPV”). The ROE        for T is 15% per year=XROE and the NPV discount factor is 6% per        year=XNPVDF.    -   (m) For purposes of this Example, inflation and changes in        manufacturing cost are both respectively set at 0% per        year=XINFLRATE for the unexpired life of Patent A.    -   (n) Compound α expresses useful biological activity suitable for        animal health applications. For purposes of this Example, the        contingent economic benefit that could result from application        of α to animal health markets is discounted to zero.        In Example 1-A, a first valuation algorithm is employed using        inputs disclosed in (a)–(k) and (m) to determine the remaining        value of Patent A to Company T. The preferred first valuation        algorithm is more particularly described in “Preferred        Embodiment of the Invention”. The first valuation algorithm        determines that existing business activity obviates the        application of prior R&D expenditures recited in (d) to the        computation of value for A.

The sales growth portion of the algorithm for compound α modifies thehistorical growth recited in (f) to account for the market limits for Hrecited in (g) and (h) and the available portion of market H to compoundα which is recited in (i).

The first valuation algorithm determines apportionment of Patent A valuein each subsequent accounting period as a fraction of the operatingmargin or gross margin respectively depending on the specific utility ofA and the dependent requirements of business functions other than A tosustain the sales of α.

With respect to R&D, the first valuation algorithm takes into accountwhether such expenditures constitute a continuing technical maintenancecost required for sales of α or whether such expenditures relate toinvestments in new technology development unrelated to the currentmarket and sales of α.

For a Patent A having all the technical characteristics previouslyrecited, and for a market H, product α and Company T having the businesscharacteristics previously recited, the gross monetization value ofPatent A with respects to its unexpired patent life can be reasonablycomputed to be $50.87 million.

The specific computations and algorithms utilized to determine the grossmonetization value of Patent A above are recited below:

-   -   (1) Calculation of Book Value of business in which Patent A is        employed:        Net Profit For Year        N=(IREV*(1+RVGR)^(N−1)−IREV*(MTL+MFGOH+SALESEXP+ADMN+R&D)*(1+XINFLRATE)^(N−1))*(1−XTAXRATE)/(1+XNPVDF)^(N−1)=NP(N)        By making the numerical substitutions set forth above, the        numerical results are:

For IREV = $25.0 (Millions/Year) RVGR =  3.0% (Annual Growth) MTL =  20%(Material Cost as % Sales) MFGOH =  10% (Manufacturing Overhead as %Sales) SALESEXP =  15% (Sales Cost as % Sales) ADMN =  10%(Administration as % Sales) R&DEXP =  5% (Continuing R&D on α as %Sales) XINFLRATE =  0% (Inflation %/year) XTAXRATE =  35% (OrdinaryIncome Tax Rate % Taxable Business Income/year) XNPVDF =  6% (DiscountFactor, %/year

-   -   -   (i) The resulting outputs are:

N (Year) 1 2 3 4 5 6 7 8 9 10 NP(N)(Mil $) $6.5 $6.6 $6.7 $6.7 $6.8 $6.8$6.8 $6.8 $6.8 $6.8

-   -   -   (ii) Book Value=Adjustment to Net Profit for NPV and            ROE=((FOR N=1,N=RPL−1), (XBPROE*NP(N))/XBPNPVDF+NP (N+1):            (XBPROE*NP(RPL−1))/XBPNPVDF+NP(RPL)=BOOK        -   where XBPROE=1+XROE and        -    XBPNPVDF=1+XNPVDF            By making the numerical substitutions set forth in Example            1-A, the numerical results are:

For XROE = 15% (Return on Equity %/year) XBPROE =  1.15 XNPVDF =  6%(Net Present Value Discount %/year) XBPNPVDF =  1.06 and

N (Year) 1 2 3 4 5 6 7 8 9 10 NP(N)(Mil $) $6.5 $6.6 $6.7 $6.7 $6.8 $6.8$6.8 $6.8 $6.8 $6.8

The resulting output is BOOK=$99.37 million.

The output variable BOOK reflects the expected increase in businessvalue for Company T that results solely from the profits and assumedre-investment of profits derived from the sale and manufacture of αduring the remaining patent life of “A”. Such calculations arerecognized as useful measures of future business value.

-   -   (2) Calculation of Fractional Business Value and Present Value        Attributable to Patent A Technology:        -   (i) Technology            Fraction=XMFGSAV*XMFGCOST+LNWPR*(1−XMFGCOST−SALESEXP)*(ADMN+R&DEXP)/(SALESEXP+ADMN+R&DEXP)+LREG*(1−(XMFGCOST+SALESEXP+ADMN+R&DEXP−XREGCOST))*R&DEXP/(XREGCOST+R&DEXP)=TECHFRAC        -   where XMFGSAV=Manufacturing Savings %=0 LNWPR=IF(New            Product, 1,0)=1 LREG=IF(Required by Regulation,1,0)=0            XREGCOST=Regulatory Costs %=0            XMFGCOST=MTL+MFGOH=Manufacturing Costs=30%            By making the additional numerical substitutions set forth            above, the numerical results are:

For SALESEXP = 15% (Sales Cost as % Sales) ADMN = 10% (Administration as% Sales) R&DEXP =  5% (Continuing R&D on α as % Sales)

The resulting output is TECHFRAC=0.275=27.5%.

The output variable TECHFRAC is an empirical coefficient which can beemployed in a successive algorithm to attribute a cash value that iscontributed by a technology to a business in a discrete time period. TheTECHFRAC algorithm reflects the fractional contribution that technologymakes to the total value of a business which may be compared tofractional values contributed by other business functions. Suchcalculations represent an improvement over prior efforts to estimatetechnology value as either all or none of the profits of a business. TheTECHFRAC algorithm anticipates that useful technologies have discreteand distinguishable means for contributing value as a function of thetechnological novelty.

-   -   (i) Technology Present        Value=SUM((TECHFRAC*IREV*(1+RVGR)^(N−1)−R&DEXP*IREV*(1+XINFLRATE)^(N−1))/XBPNPVDF^(N−1):(TECHFRAC*IREV*(1+RVGR)^(RPL−1)−R&DEXP*IREV*(1+XINFLRATE)^(RPL−1))/XBPNPVDF        ^(RPL−1))=TECHVALUE        By making the numerical substitutions set forth above, the        numerical results are:

For IREV = $25.0 (Millions/Year) RVGR =  3.0% (Annual Growth) R&DEXP = 5% (Continuing R&D on α as % Sales) XINFLRATE =  0% (Inflation %/year)N = Years 1 to RPL RPL = 10 Years XBPNPVDF =  1.06 Net Present ValueDiscount TECHFRAC =  27.5%

The resulting output is TECHVALUE=$50.87 Million.

The output variable TECHVALUE is a current valuation of Patent A as aproperty asset whose value is the sum of its income contribution due toits technological novelty over its unexpired patent life and divided bya net present value denominator for future expected income. Incomecontribution computed by multiplying TECHFRAC and future expected annualsales is reduced to the extent future R&D expenditures are made tomaintain the utility of Patent A. The TECHVALUE algorithm is a novel anduseful method to determine the internal value of an intellectualproperty to a business that owns and utilizes such an intellectualproperty. TECHVALUE is novel in that it creates a computed economicvalue that a prospective purchaser of such a technology may utilize todetermine whether such a purchase price is supported by the businesscurrently using it. A further novelty is that TECHVALUE does not requirea pre-existing market for technologies similar to Patent A to compute avalue that reasonably represents a maximum appraisal value that issupportable by the business presently using Patent A.

Such monetization computed by the enumerated algorithms set forth inthis Example 1 does not preclude the computation of alternative valuesas a result of alternative inputs in (a)–(n). Further, the computationdoes not preclude the use of the algorithms to compute the reasonablefair value that can be attributed to various contingent applications ofA for businesses not yet in existence but foreseeable prior to theunexpired life of A. The computation does not preclude the use ofstatistical variations or processes to manipulate the inputs into thevaluation algorithms or statistical manipulation of such outputs toexpress the reasonable range of the value of A.

It will be obvious that such variations will compute a bounded range forthe value of A whose maximum and minimum values will constitute the mostlikely monetization values of A which result in the least variance ofthe solution set of all such monetization values.

The more realistically that Patent A's present value can be estimated,the less risk is involved in the creation of a monetized financialderivative. Having a reasonably predictable risk is essential to havinga viable marketplace for the securitization of patents. In the currentembodiment, the derivative is structured as a purchase money instrumentwhich pays a fixed royalty at regular intervals over the remaining lifeof Patent A in exchange for a license to Company T to practice A.Computation of a fixed royalty stream can be accomplished with wellknown algorithms for determining the required payment to return apredetermined rate of return given an initial principal amount.

-   -   (3) Annual Royalty payments on Patent A:        -   (i) Annual Royalty=PMT(XRAR,RPL,−TECHVALUE)=ROYALTY            -   where XRAR=Royalty Annuity Rate %/year=7.0%                -   PMT( )=Annuity Computation Function                    By making the additional numerical substitutions set                    forth in Example 1-A, the numerical results are:

For XRAR =  7.0% (Royalty Annuity %/year) RPL = 10 Years TECHVALUE =$50.87 Million

The resulting output is ROYALTY=$7.24 Million/year.

The selection of values for XRAR (royalty annuity rate) may be arbitraryor may be selected so that the present value of current and futureincome of Company T where Patent A is sold and back-licensed equals orexceeds the present book value of the business income of Company T overthe life of Patent A. While such algorithms such as Eq. (3)(i)constitute prior art in the computation of annuity or debt and principalcalculations for pre-existing financial instruments it is novel anduseful to create the algorithm of Eq. (3)(i) that integrates theTECHVALUE algorithm to apply Eq. (3)(i) algorithms to intellectualproperty.

The computations to determine if Company T obtains an increase inpresent book value if it securitizes Patent A are:

-   -   (4) Net Present Value of Patent A Sale proceeds over remaining        Patent life:        -   (i) NPV            Patent=(1−XCGR+LDCG*XCGR)*XFees*(XBPROE)^RPL/XBPNPVDF^(RPL)=PATENT            $

For: LDCG = Defer capital gains? (Y = 1 , N = 0) = 0 XCGR = 35% (CapitalGains Tax Rate) XFees = TECHVALUE*(1 − Fees%) = TECHVALUE Fees% = 0(Business Expenses for Transaction, %/TECHVALUE) XBPROE = 1.15 (Returnon Equity Multiplier) XBPNPV = 1.06 (Net Present Value Discount Divisor)DF RPL = 10

The resulting output is PATENT$=$74.70 Million.

-   -   -   (ii) Profits−License Royalties For Year            N=(IREV*(1+RVGR)^(N−1)−(IREV*(MTL+MFGOH+SALESEXP+ADMN+R&DEXP))*(1+XINFLRATE)^(N−1)−ROYALTY)*(1−XTAXRATE)/(1+XNPVDF)^(N−1)=NEWNET            (N)

For: IREV = $25.0 Million (First Year Sales) RVGR = 3% (Sales Growth%/year) N = 1 to RPL (Years of Unexpired Patent life) RPL = 10 years(Remaining Legal Life of Patent A) MTL = 20% (Material Cost as % Sales)MFGOH = 10% (Manufacturing Overhead as % Sales) SALESEXP = 15% (SalesCost as % Sales) ADMN = 10% (Administration as % Sales) R&DEXP = 5%(Continuing R&D on α as % Sales) XINFLRATE = 0% (Inflation %/year)XNPVDF = 6% (Net Present Value Discount %/yr) XTAXRATE = 35% (OrdinaryIncome Tax Rate %) ROYALTY = $7.24 Million (Annual Royalty)

The resulting output NEWNET(N) for years N=1 to 10 years is:

N(Year) 1 2 3 4 5 6 7 8 9 10 NEWNET(N)(Mil $) $1.8 $2.2 $2.5 $2.8 $3.0$3.3 $3.5 $3.7 $3.8 $4.0

-   -   -   (iii) New Book Value=NPV and ROE Adjustments to Sum of            NEWNET(N)=((FOR N=1,N=RPL−1), (XBPROE*NEWNET            (N)/XBPNPVDF+NEWNET (N+1)):(XBPROE*NEWNET            (RPL−1)/XBPNPVDF+NEWNET (RPL))+PATENT $=NEWBOOK

For: XBPROE = 1.15 (Return on Equity Multiplier) XBPNPVDF = 1.06 (NetPresent Value Divisor) RPL = 10 years (Unexpired Patent Life) and

N (Year) 1 2 3 4 5 6 7 8 9 10 NEWNET(N)(Mil $) $1.8 $2.2 $2.5 $2.8 $3.0$3.3 $3.5 $3.7 $3.8 $4.0

The resulting output is NEWBOOK=$117.49 Million.

-   -   -   (iv) Change in Book Value=NEWBOOK−BOOK=VALUECHANGE

For: NEWBOOK = $117.49 Million BOOK =  $99.37 Million

The resulting output is CHANGEVALUE=$18.12 Million

The foregoing algorithms permit Company T to compare the differencebetween BOOK and NEWBOOK. If CHANGEVALUE>0, it is to Company T'sadvantage to sell and back license Patent A. The algorithms also permitCompany T to determine any interim CHANGEVALUE(N) between NEWBOOK(N) andBOOK(N) by substituting any year N for the variable RPL where 1≦N≦RPL.

1. An electronic data processing method of determining a change in valueto an owner of a patent estate having at least one patent comprising:entering information related to the patent estate; calculating a presentvalue of the patent estate using a first computerized valuationalgorithm; selecting a second computerized valuation algorithm having aplurality of inputs; inputting the value of the patent estate into thesecond valuation algorithm; inputting at least one additional piece ofinformation reflecting the owner's patent estate as a security requiredby the second valuation algorithm; and calculating a future value to theowner of the patent estate using the second computerized valuationalgorithm.
 2. An electronic data processing method according to claim 1wherein said patent estate further comprises more than one patent.
 3. Anelectronic data processing method according to claim 1 furthercomprising: entering an identifier for each patent of the patent estate,which comprises entering the patent number.
 4. An electronic dataprocessing method according to claim 1 further comprising: entering anidentifier indicative of a utility of each patent in the patent estate,which comprises selecting from a list comprising new product category,improvement on existing product, new process, improvement on existingprocess, and regulatory compliance.
 5. An electronic data processingmethod according to claim 4 further comprising: using said identifierindicative of a utility for selecting a first valuation algorithm from aplurality of valuation algorithms particular to the type of utilityassociated with each patent.
 6. An electronic data processing methodaccording to claim 1 wherein said step of entering information relatedto the patent estate comprises entering information on the financialcharacteristics of the owner.
 7. An electronic data processing methodaccording to claim 1 wherein said step of determining the present valueto the owner of the patent estate using said first valuation algorithm,comprises determining the present value of the owner with each patentand without each patent.